CyberScope – Q1 2020 Market Review

Welcome to the Q1 2020 edition of the CyberScope – Results International’s market update for the global cybersecurity sector.

Highlights of the quarter:

In our last edition, three months ago, we predicted “more of the same” for the cyber security industry! In some ways of course, this is true:

Phishing attacks are at an all-time high, and high-profile breaches continue apace.

Mass remote working adds another layer of complexity and attack vector to be secured.

Resilience will grow in importance for Boards leading to even more focus on cyber security.

Covid-19 will have at least a short-term negative impact on the sector:

Our Global Security index dropped 12% during Q1; although some players, like Crowdstrike, Cloudflare, Okta and ZScaler bucked the trend, and the whole index has risen c. 5% since the end of the quarter.

Valuations have declined markedly in the public markets: a 22% drop to 6.4x revenue for the 75th percentile (which we use a proxy of next-gen vendors) but still don’t look low by historical standards driven by the structural strength of the industry in the long-term.

Deal activity continues but at a much slower pace: Q1 generated 35 M&A transactions up slightly on the average for H2 2019; but in the early weeks of April was understandably muted – the buyout of Avira by Investcorp for $180m, being a notable exception.

Outlook:

We expect the sector to bounce back strongly and more quickly than other segments of the technology industry, and the broader global economy:

That’s what happened after the financial crisis of 2008

The fundamentals of the sector and its end-market use cases were strong before Covid-19

Changes to working practices, supply chains, and the focus on resilience at Board level will drive additional investments in the short, medium and long-term

Despite current market turbulence, 2020 will remain a good year to contemplate fundraisings, exits or acquisitions in the cyber security space. Please do get in touch to discuss.